In its effort to give its followers and subscribers the best news and advice regarding stock investments, Stansberry Research, an independent private research firm engaged in the provision of investment information and dissemination, has featured an article about investing in commodities.
Commodities could be considered as a vital part of an investment portfolio if bought and sold at the right time. This is more or less a good way to invest your hard earned money in other things aside from bonds, real estate and stocks. However, prior to investing any sum of money in commodities it is best to understand the “law” that governs the resource segment of the market industry.
Keep in mind that commodities go through the same kind of cycle, which means to say that after an enormous “boom” an enormous “bust” would certainly follow, and then the cycle would start all over again.
Since commodities are categorized in the free markets, it is driven by the law of supply and demand. So, if the supply for a certain commodity becomes limited compared to the current demand for the product, the pieces of the said commodity will increase. The rise in the prices will draw the interest of producers to create more and supply the market with the said commodity. Once the supply or availability of the goods (commodities) has risen, the prices will now decrease, and the market will again reach the necessary balance.
This cycle can also go the other way, when supply is on the rise or at high for some time the prices will fall or are low. But once the supply starts to diminish the prices will increase.
Now the said cycle is not applicable to the resource sector that covers drilling for oil, building a mine or initiating a productive farm business because such ventures require a longer length of time (usually years) to produce the desired results and would likewise require a larger sum of money for investments that are in in millions or billions of dollars.
Hence, the supply and demand for the resource market will often create price fluctuations in stocks with excessive highs and lows.